Penske Automotive Group's (NYSE:PAG) Upcoming Dividend Will Be Larger Than Last Year's

Penske Automotive Group, Inc. (NYSE:PAG) will increase its dividend from last year's comparable payment on the 3rd of December to $1.19. This will take the annual payment to 2.7% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Penske Automotive Group

Penske Automotive Group's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Penske Automotive Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 9.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.68 in 2014 to the most recent total annual payment of $4.28. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Penske Automotive Group has been growing its earnings per share at 21% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Penske Automotive Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Penske Automotive Group is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Penske Automotive Group you should be aware of, and 1 of them is concerning. Is Penske Automotive Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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